Price pressure: the cost of diversification

There’s a race horse called Silviniaco Conti who looks unbeatable wherever he runs, until he runs at Cheltenham. Despite having disappointed in previous attempts at the prestigious Cheltenham Gold Cup, he once again started this year’s race as the favourite, following a string of impressive victories over the preceding weeks and months. He finished seventh. It was a perfect illustration of the idiomatic British expression “horses for courses”; the idea that different people are suited to different things. Silviniaco Conti, a brilliant horse elsewhere, plainly isn’t suited to Cheltenham.

It used to be a bit like that in consulting. Firms that were quite brilliant at some things were generally thought to be pretty ineffective at others. You could trot a thoroughbred like BCG out on strategy projects all day long, but you wouldn’t let them anywhere near a BPO initiative for fear that they’d fall at the first hurdle. By the same token, you’d happily let Accenture help you out when it came to outsourcing, but you wouldn’t want them anywhere near the boardroom. Horses for courses.

What that meant was that for every project there was an obvious type of firm to help. And that meant that relatively few firms pitched for any one project. And that meant there was relatively little competition. And that meant high prices.

But now most big firms are trying to lay claim to an ability to do everything. Well, not everything, but most things. BCG probably won’t outsource your IT department for you, but they’ll certainly help you to implement a digital transformation initiative. Accenture would still be delighted to outsource your IT department, but first the Accenture Strategy guys would like to have lunch with your CEO. And if there’s anything the Big Four can’t do at the moment then give them five minutes and they’ll have bought someone who can.

As a result, big firms often finding themselves pitching for a piece of work alongside…well…everyone. Which means procurement managers are walking around grinning from ear to ear while the leaders of consulting firms are wondering where on earth their profits have gone. All are touting the ability of their firm to do everything from strategy to execution (if not from lunch to outsourcing) but many remain puzzled about why prices keep falling like a three-legged horse at the Grand National.

The solution? Fewer horses.